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Measuring Inflation Expectations Using Interval‐Coded Data*

Oxford Bulletin of Economics and Statistics

Published online on

Abstract

To quantify qualitative survey data, the Carlson–Parkin method assumes normality, a time‐invariant symmetric indifference interval, and long‐run unbiased expectations. These assumptions are unnecessary for interval‐coded data. In April 2004, the Monthly Consumer Confidence Survey in Japan started to ask households about their price expectations a year ahead in seven categories with partially known boundaries. Thus one can identify up to six parameters including an indifference interval each month. This paper compares normal, skew normal (SN), skew exponential power (SEP), and skew t (St) distributions, and finds that an St distribution fits the data well. The results help us to better understand the dynamics of heterogeneous expectations.